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Little Caesars is back!

By: By Eddy Goldberg | 8,365 Reads

The Little Caesars Pizza story isâ€¦ well, quite a story. Founded by Mike and Marian Ilitch, first-generation Americans of Macedonian descent, the company is approaching its 50th anniversary. Still family owned and operated, Little Caesar Enterprises, Inc. has grown prodigiously since its first store opening in 1959 in Garden City, Mich.

The Ilitches sold their first franchise in 1962 for $5,000. The chain grew rapidly, and by the end of 1969, there were 65 restaurants. In 1988, Little Caesars had restaurants in all 50 states and was firmly entrenched as one of the "Big Four" pizza franchises (along with Pizza Hut, Domino's, and Papa John's).

Before pizza, it was all about baseball for Mike Ilitch, a shortstop in the Detroit Tigers farm system. An injury ended his baseball career, but he retained his passion for the game. In 1992, the successful franchisor bought the team he once dreamed of playing for, at a price of $85 million. Ten years earlier, he had acquired the Detroit Red Wings for $8 million.

Today he - and Marian, often described as the financial wizard, where Mike excels at marketing - is listed among the Forbes 400 richest Americans (#242 in 2006), with interests in food, sports, and entertainment through Ilitch Holdings.

Back to pizza, by 1995, the brand ranked third among the Big Four, with an estimated 4,800 units worldwide. (Note: the company is notoriously private with its numbers, so reports of its units and financials vary widely, with some estimates as low as 3,000 and some as high as 5,500 at its peak.)

Regardless, as the 1990s ended, the company had its share of problems, including a lawsuit from franchisees (settled in 2001), store closings, declining sales, and falling profits. After more than 35 years of consecutive growth, things were not looking so rosy at Little Caesars. (Nor particularly for much of the pizza industry, to be fair.)

In 1999, Ilitch hired David Scrivano away from Domino's Pizza, where he was vice president of administration. Scrivano had spent 10 years at Domino's, starting as a store manager. He became part of a corporate team that developed a five-year strategic plan to turn Little Caesars around.

Instituted in 2001, the six-point plan revamped all key aspects of the brand:

the pizza itself (higher-quality, fresher ingredients)

operations (a new training and certification program)

image (remodeling all restaurants)

advertising (no more national ads, everything pushed to the local level)

a renewed focus on franchisees (greater support, higher ROI, more local control)

new products (without complicating operations).

The company also cut back severely on delivery to focus on carry-out.

After the first 18 months, the historically private company went public with the initial results: double-digit sales increases for those 18 months, and 11 percent sales increases overall (same store sales) for 2002.

Today, says Scrivano, the company is enjoying its seventh consecutive year of growth. While he would not confirm or deny any numbers reported by outside sources, nor release any himself, a company profile in Forbes magazine last October reported Little Caesars had 2,300 stores, annual system growth of 10 to 15 percent, and an estimated net of $80 million on system-wide revenue of $1.4 billion in 2006, up from $1.2 billion the previous year.

The profile also noted that during its hardest times, the company closed 750 underperforming stores, which it estimated at 25 percent of the total. (A pizza trade publication reported the company closed 400 stores in a single day in 1999.)

For the U.S., the company's current UFOC (March 31, 2007) reports 1,381 franchises and 393 company stores (up from 1,176 franchises and 375 company stores in 2005; and 1,095 franchises and 365 company stores in 2004). Additionally, at the end of 2006, Little Caesars had 223 units located in Kmart stores. However, that franchise agreement expired and discussions with Kmart for renewal or other arrangements were still under way at press time.

In March 2006, Little Caesars announced plans to add hundreds of stores worldwide, with a focus on the U.S. In February 2007, the company stated it had exceeded those plans by opening "several hundred stores worldwide, the majority in the U.S.," located in 32 states and 9 countries. For 2007, the UFOC projects 198 new franchises and 58 new company stores in the U.S. The company is moving back into markets it had abandoned, including Denver, Pittsburgh, Dallas, Indianapolis, and the Pacific Northwest, and is expanding in others where it has remained, such as Atlanta.

"We have areas where we're under-penetrated," says Scrivano. "We believe we can build over 1,000 stores just in the Northeast." Its current promotion, $5 Hot-N-Ready pies, ready to go when the customer arrives, is proving a big boon for growing the brand, much as its buy-one-get-one-free Pizza! Pizza! campaign was in 1979.

Another way the company is attempting to accelerate its growth and recovery is by offering multiple-unit opportunities for the first time in its history under a new program, implemented just a few months ago.

In the past, says Scrivano, developers with the means to develop multiple stores would start with one restaurant, then add more, one at a time. The new program, he says, is in response to demand from both franchisees and outside prospects. "We sent notice to all our franchisees," says Scrivano. "All existing franchisees have first priority."

As part of the overall plan to find quality franchisees, in 2005 Scrivano started a program in which corporate staff spend a week or more working side-by-side with franchisees in their stores (for more details, see Training story, page TK). One intended result of this program, besides the obvious benefit of building connections between Detroit and store owners, is to open a career path option for people at corporate to become franchisees.

The big switch - II

Two years ago, Mike Scruggs, Sr., was senior vice president of global operations at Little Caesar Enterprises, Inc. in Detroit. One year later, he was living in Colorado Springs, now a Little Caesars franchisee operating two stores with his wife, Deb, and his son, Mike II.

He stayed on board with corporate for one more year as a senior consultant until last August, officially leaving the company he'd worked for since 1978. This past April he opened his fifth restaurant and has plans for more.

Scruggs spent most of his adult life at Little Caesars, starting as a manager trainee. He was 19, enrolled in a culinary arts program and working toward a business degree when he "made the big switch" in 1978.

"I thought Little Caesars had something to offer," he says. The brand had fewer than 200 stores at the time. He liked the Little Caesars Pizza Station concept, which he describes as similar to a Wendy's operation with a drive-through, an 80-seat dining room, and carry-out. He was soon running a store in Chesterfield Township, north of Detroit, opening the third Little Caesars Pizza Station.

"I've always been in operations, behind the counter, working in the stores with the managers and the people," he says. He'd started in the pizza business when he was about 15 or 16, he says, working at Amato Brothers in Livonia, Mich., west of Detroit. That's where Scruggs says he learned his work ethic - and some valuable lessons about working with others. For instance: "You retain people by how you train them, and how you respect them, how you support them. It's not always pay."

Scruggs cites two main reasons for his recent "big switch," this time from corporate executive to franchisee. "You want to build something for yourself and your family," he says. Second, "You want to work for yourself, make decisions that don't involve a lot of red tape." (Plus, we suspect, he really likes working in a pizza store!)

Scruggs was deeply involved and played a key role in the six-point plan (see above) that turned Little Caesars around, returning it to growth and profitability during the past six years - red tape and all. But it was really a combination of factors that drew him to Colorado and franchising.

A few years back, his now-25-year-old son, Mike II, who had never previously shown an interest in the business, said he'd like to get into Little Caesars as a franchisee. Scruggs put him to the test in a Detroit store for six months. "He did well," says Scruggs, which got him to thinkingâ€¦

Scruggs and his wife were raised in Detroit and were ready to get out. The Colorado Springs market was available. It had been without a store for six years, was clearly a growing area, and all in all looked good to reenter. And, he adds, with the successful overhaul of the brand, "It's a great time to be a Little Caesars franchisee."

It's working for him: Scruggs has opened his 5 restaurants in 31 months, a pace he calls "pretty aggressive." He's looking to build out the market to 12 to 14 stores, at a rate of two or three per year.

Scruggs already has identified six to eight new locations in Colorado Springs where he'd like to build. "We know what corner we want to be on. It's now finding the right piece of real estate. Sometimes you have to wait a year. That's better than putting one in across the street that's not as convenient," he says. "You have to be very disciplined."

Scruggs credits Little Caesars founder and owner Mike Ilitch with a great deal of his own success. "He's been like a father to me. I've been with them since I was 19," says Scruggs, who turns 50 this year. "Some of the things they've done for me and my family over the years have been unbelievable. He's a great person, and has been a mentor to me."

And despite Ilitch being one of the richest men in the U.S., "I always felt comfortable talking openly and honestly about anything without worrying about the consequences," says Scruggs. "He's been a rock all the time - for advice, or to bounce an idea off of."

So in June 2004, Scruggs sent Mike II to Colorado Springs to operate their first store. They found a site, hired management, and opened in October. "I'd go back and forth from Detroit," he says.

After a year of that, and now with a second store open, Scruggs and his wife moved to Colorado Springs in August 2005. Scruggs was retained for another year by corporate as a senior advisor, and officially left LCE, Inc. in August 2006. "Mr. Ilitch was kind enough to let me get the business going before I made the jump," he says.

He knows the system inside and out, loves operations, and has his family involved, doing everything not handled directly by their managers and staff. Mike II is operations manager and involved in HR and day-to-day store responsibilities, as is Scruggs. Deb does all the bookwork and accounting from a home office.

"There may be a day when we have another person or two, but even at 12 to 14 stores, I don't want to create a lot of overhead. I want to keep my hands around the business," says Scruggs.

His biggest challenge - no surprise here - is finding good management people with a good, solid work ethic, he says. "One of the things I tell managers who come to work for me who tell me â€˜I'm great at this or that' is that we're not running a sprint here, we're running a marathon. You don't have to wow me, just show up every day and do your job. Unfortunately," he says, these days, "wowing is showing up every day."

After nearly 30 years at corporate, today his motivation is building a business for himself and his family. Bank payments also motivate him, he says, laughing. And being the competitive guy he says he is, there's also his desire to run great stores, have high sales, and be successful. "I have a very high passion for what I do. It sometimes gets the best of me."

Any succession plan Scruggs has "is more in my head at this point," he says. He's looking to Mike II, 25, to take over. A younger son, Adam, 21, still in school, also has shown an interest in the business. And his daughter, Katelyn, a high school senior next year, works a couple of days - "if I can get her," he says. There's time.

Profile:

Memorable first job: Amato Brothers (pizzeria), almost four years. I learned a lot from that owner, who was there every day. It probably set my work ethic from day one. Of course my late father had a lot to do with that: Work hard, do your job, and things will take care of themselves. I'm number 5 of 10 kids.

Key education: I didn't finish college. I always joke I have an MBA - mop, bucket, attitude! I learned that from David Thomas at Wendy's. From 1987 to 1991 in Los Angeles my brother and I opened 110 Little Caesars restaurants, 25 of them in 6 months. We did it all: real estate, marketing, HR, training - and we opened an office and a warehouse for food distribution.

Role model(s): My Dad. And Mike Ilitch - he's always been there for me.

Currently reading: John Miller's QBQ! The Question Behind the Question: Practicing Personal Accountability in Work and in Life. I will buy it for all my managers.

Best business book ever written: The Bible

Others say you are: Very driven, very focused. I have a high passion for what I do.

Business news sources: Internet mostly, papers

Favorite web sites (besides your own): The one I check every day is our bank.

Franchise systems (besides your own) that are creative: In-N-Out Burger. If it were a franchise I'd buy one. It's family owned, they own all their stores, and have been doing the same thing since 1948: burgers, fries, and shakes. If you can continue to execute and have a great product, customers will come back. I sure hope Little Caesars will do that, because it's working. New products are okay, but I don't want to see it complicate the operations and the business. McDonald's got into trouble when they tried to be everything to everybody. In December 1998, I met with Gordon Teeter, Wendy's president. He told me, "Don't ever let your marketing department change the way your kitchen operates."

Biggest project for the year: Continuing to grow the business from 5 up to 7 restaurants. Offer people opportunities, have a solid Little Caesars brand in Colorado Springs. See my little Scion with all the signs. Think good things. Everyday success, one customer at a time.

What you do to unwind: I don't. I have a nice Harley sitting in the garage I'd like to get out on. I play a little hockey once a week. Learn how to relax is what I need to do.

A unique event because it is highly influenced by its advisory board, consisting of the very best multi-unit franchisees. The board works diligently to ensure that the conference delivers on its promise of being the best platform for franchisees to learn how to grow their businesses.

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